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tv   Prime Interest  RT  July 20, 2013 9:29am-10:01am EDT

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and speaking of insolvent we'd be remiss without mentioning the fed which is named its own accounting manual to make sure the big banks get paid ahead of the taxpayer a new york times article highlighted our recent guest steve and how bernanke got it oh so wrong and provide some choice coats quotes from a nobel prize winning economist in two thousand and three nobel laureates robert lucas jr actually said it has succeeded the central problem of depression prevention has been solved finally detroit might be in the sewer but that doesn't stop movies from upgrading its outlook on u.s. debt from negative to stable and that aaa rating still intact moody's actually said the federal government's debt trajectory is on track even without further budget measures well you don't want to get sued by standard and poor's right all's well that ends well except we're just at the beginning of the end of the debt supercycle so stay tuned as we talk to michael hudson about the bubble economy and the role of
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the fed in just a bit. and now it's good to what's in your prime interest. treasuries are headed for the largest two week gain this year this is after bernanke you assured congress that it was way too early to make any judgment about tapering earlier i spoke with michael hudson author of the bubble and beyond about fed tapering and the true effect of quantitative easing. well quantitative easing is a kind of government spending but it's not the kind of government spending that ends up as part of the budget deficit it's pure money creation that spent on buying
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securities from the banks mainly their mortgage backed securities including junk mortgages other bonds so the idea is to pump money into the banking system the pretense is that the banks that are going to turn around and lend this money out to the economy but that's not what's been happening at all either the economy the banks have been speculating in foreign arbitrage currencies or foreign loans or they've been spending it within the financial sector none of the quantitative easing has really gone into the economy at large so where is keynesian spending is the government is the employer of last resort in quantitative easing the government is the buyer of junk mortgages of last resort when there are no more german banks to buy there are no more pension funds to buy everybody knows that these mortgages are what's called toxic waste the government is the buyer of toxic waste of last resort and so what's what's going to happen i mean the federal reserve owns all
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this treasury securities but also all these m.b.'s you securities and they've changed their accounting manuals so they don't have to take capital losses but when interest rates rise there is still going to be paying interest on excess reserves one point seven trillion dollars of this that we have right now is it possible that the fed could go cash flow negative and possibly have to print money in actually in a tightening cycle. that's exactly what it would have to do and of course it can print the money electronically in an appropriate or keyboard. ad infinitum and essentially this is just a bookkeeping ration it can do that is a subsidy to the banks and all of this paying interest. bank reserves is simply for a subsidy so the go the government will lend money to the banks at a low interest the banks earn a higher interest in the federal reserve it's a pure giveaway at some of the proverbial free lunch well let's talk about these
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m.b.'s securities because this basically relates to the housing market and recently we've seen housing prices rise and the stock market hit all time highs has this been a direct effect of these q.e. programs i mean is this has been has this been a true housing recovery no let's look at the housing market it's fundamentally changed now that the federal reserve has pushed down interest rates to one percent on government securities you have all of these bond holders and the cash rich hedge funds what are they going to do they're not making loans anymore and making money by loans what they're doing is for the first time they're buying property real estate at one hundred percent cash there are a lot of vulture funds and hedge funds that are buying real estate for all cash instead of leveraging so what you have done is you've turned the traditional real estate market since world war two upside down and instead of they don't put any of
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your own money used borrowed money now it's use only your own money don't borrow from the banks this is how the hedge fund and the cash rich people are making their money as landlords so what we're doing is going back from the twentieth century finance capitalism back to the old nineteenth century landlord post feudalism type of economy well let's talk about these a mortgage economy that we have some of these private equity groups have been buying up a lot of property and they've form rental companies and now they're actually i.p.o. ing these companies off so are they seeing a downturn or are they trying to get out before we see the next housing crash perhaps well they're certainly trying to get out at the best price they've had make . twenty percent twenty five percent returns annually for the last few years and the minimum investment i'm told is five million dollars and they'd said if i wanted to come in they'd give me one million dollars which i didn't have. but they're very
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cash now that they they've established a very high rate of earnings and buying from a very low price they're trying to go public hoping that people are going to project these higher returns infinitely into the future and overpay in other words the hedge funds are cashing out well let's talk about interest rates because this seems to be central to everything he's talking about ending or at least tapering q.e. by by the end of the year and half of the f. or wimsey voting members actually said that they should end it by the end of the year and yet we have this disconnect because somehow this is somehow separate from interest rates the fed says that they're going to keep interest rate interest rates low into mid two thousand and fourteen mid two thousand and fifteen what is the fed exactly trying to do here well it is trying to prepare the way to raise interest rates and the best way to understand this is look at what happened from one
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thousand nine hundred forty five to one thousand nine hundred eighty when the united states and europe emerged more war two interest rates were very low above one percent for thirty five years you had a bear market you had interest rates rising steadily from just one or two percent all the way up to twenty percent in one nine hundred eighty so during all those thirty five years there was a bear market and the only money coming into wall street was largely from the pension funds and you had the stock market bid up by pension fund capitalism so right now what you're doing is. moving back towards the post world war two period of rising interest rates that means there is no free lunch from rising interest rates anymore bond prices cannot go up from here because interest rates cannot go. from here so you have no way of making money through financial speculation anymore the game is over and so the fed talks about somehow ending the giveaway to the banks but it can't end the giveaway to the banks because different just rates go up
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then the banks are going to lose on their balance sheets and one way or another there is no exit from where we are except by writing down the existing debt overhead and that's not what the fed or the treasury want to do well let's talk about that kind of end game scenario of course if you look at a church a chart of thirty year or ten year bond yields it's on the way down and it can't stay at zero forever it has to rise but what is what happens when interest rates rise with respect to these banks what is i mean from a regulatory perspective from a monetary spur specht of how are these banks going to survive this liquidity crisis that they're inevitably going to face nobody has been able to answer that question and. they somebody the economy has lost a lot of money in that debt overhead somebody has to pay now either the economy pays or the banks the banks position is save us not the economy so the government
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says ok we're going to do it we're going to treat america essential like the international monetary fund has created third world countries for thirty years we're going to impose austerity the way of solving things the only way that the banks think is to treat america like greece to treat it like europe has treated italy to impose austerity and really tighten the screws nobody has found an alternative to impoverishing the economy to pay the banks something has to give so let's talk about what might give here i mean before the bust as asset prices were rising families were taking on more and more debt and we've seen the leveraging since two thousand and eight what's in store for the average person not necessarily the. banks but in terms for the average person. well unemployment is still pretty high the average family is pretty debt ridden now you have student debt rising. a
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lot of families are drawing down living off credit cards to breakeven they're not able to get mortgage loans so they can't raise their consumption that way so essentially you have for most families the market's shrinking and employment opportunities are shrinking and the employment opportunities that are opening are largely in the minimum wage which. president obama has not made any move to to raise so it looks like the squeeze is on for most families well we had more worried most lower on the other day and he was talking about modern monetary theory how does this fit into your view of how to correct the markets how to correct our current economic situations it's it's a very if i have to look at it myself it's kind of a very different way of looking at keynesianism but it's apparently something different when you just kind of break it down for our viewers the essence of modern monetary theory is that now that we're not on gold anymore the government can simply create money just like the federal reserve has created quantitative easing
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it's just a prince the money electronically it doesn't have to tax that's what makes the american economy so much better and freer than the european economy europe doesn't have a central bank to essentially create the money to help its economies recover the american economy has a federal reserve and that can create enough money to spur recovery the question is is this money that the federal reserve is going to create like the thirteen trillion that it's given to the banks going to help the banks recover or is it going to help the economy recover well president obama says we can give thirteen trillion to the banks but in forty years we're going to have to spend one trillion for social security that's all off. we can only give money to my campaign contributors on wall street not a penny to the voters who elected me not a penny to the economy no war in mosul or wants the government to create this money
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to spend into the economy to recover employment to spend on the real economy but the federal reserve says well we're monetary modern monetary theorists in a way we are going to create the money like you want mr muslim but we're only going to give it to our campaign contributors we're only going to give the money we can we can create to the banks to buy their mortgages we're not going to help the economy buy goods and services we're not going to help raise living standards we're only going to help the banks avoid losses because we have the federal reserve has our clients that's the banks who own us and were run by the banks independent from democratic control. that was my interview with michael hudson president of the institute for the study of long term trend economics and author of the bubble and beyond and coming up very different digs into the fine print of detroit's bankruptcy filing and i will do all of the t.v. producer rachel craziest on the social and legal consequences of the largest ever
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city default. one of the great spade blind to what is happening in their country. the american dream is disappearing. the houses with gardens are laid out the poor are left hopeless the streets are full of angry crowns that are fighting against. heise who stole the american dream. i would rather ask questions for people in positions of power instead of speaking
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on their behalf and that's why you can find my show larry king now right here on r.t. question more. download the official. language. and enjoy your favorite. if you're away from your television. set now with your mobile device you can watch on t.v. any time anyway.
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in two thousand and eight the financial system was in disarray treasury secretary hank paulson lobbied heavily for a seven hundred billion dollars bailout called tarp that would help mortgage holders it and instead the money went largely to the big banks but george w. bush made sure that seventy seven billion dollars also went to bail out chrysler and general motors those funds were by law to be used for financial companies which the two automakers obviously were not the second swindled would come under obama's watch when he forced the two companies into bankruptcy those who had let money to chrysler in the form of bonds would face a strong armed intervention by the administration to pressed to please the united automobile workers they ended up with thirty three percent more money than other creditors who should have been paid first the point the rule of law was violated to please a constituency well the automakers home of detroit is in the news again more muni defaults will come and the question is will the rule of law prevail or will we see
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a repeat of the banana republic style justice that prevailed in two thousand and eight in two thousand and nine here to get dig into the facts of this precedent setting bankruptcy as perry. i. i. the motor city just became the largest bankruptcy in america on thursday july seventeenth detroit's emergency city manager kevyn orr a filed for chapter nine bankruptcy after failing to reach agreements with bondholders and creditors mr or. told citizens yesterday the city services for now are unaffected police and fire departments will operate as usual all. services remain open paychecks will be made bills will be paid nothing changes from the
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standpoint of the ordinary citizens perspective. municipal bankruptcy is a complicated process results depend on location and where proceedings occur so let's dig into the fine print of municipal bankruptcy is and how detroit could be affected here is for the city could take place in detroit kentucky ohio or tennessee the bankruptcy judge will be the one who determines first an automatic stay will be issued on the city's obligations to halt creditors from collecting debts this includes losses lawsuits against the city from pension officials and union members the automatic stay will allow the city time to renegotiate its contracts then the droid's will have to meet eligibility requirements under chapter nine the first one is authority the city was allowed to prove its insolvent and has a desire to adopt a plan to adjust its debt and the court grants detroit the ok to move forward the reorganization plan will have to be voted on by creditors this bankruptcy could
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take in an unknown amount of time before an agreement to be made the city has around eighteen billion dollars of debt making it the largest municipal bankruptcy in american history creditors range from secured bond holders general obligation bond holders secured unsecured creditors and a union pension board's a showdown of who will end up with what is sure to occur here according to the detroit news or offered to the city's unsecured creditors including unions and pension funds just ten cents on the dollar while at the same time or reportedly agreed to pay two big bang's bank of america and u.b.s. seventy five cents on the dollar to settle financial claims does secured creditors called mr conan and could not reach an agreement that has found itself in a vicious cycle of dwindling tax base eroding public services and population decline in addition crime is rising but it is not the only municipality with these
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problems there have been thirty six filings since two thousand. then this put together with data from morningstar shows twenty one states that are not fiscally sound based on pensions many other cities in america have badly underfunded pension . will be closely watched because michigan's constitution holds a clause that specifically bans cuts to retiree pensions and benefit payments if michigan is allowed to cut payments this could set a precedent for other municipal bankruptcy around the country detroit has been called a huge test kitchen from unit municipal bankruptcy hopefully the fire in the kitchen can be put out before it spreads to the.
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joining me is our t.v. producer rachel courteous thank you for joining me on this latest daily duel glad to be here we're good talking to troy to let's just launch into this story detroit has become the largest city in the us to file for chapter nine bankruptcy however a recent michigan court ruling raised questions as to whether the bankruptcy will even stand up to court review so rachel if it does succeed for filing into bankruptcy who are the winners and the losers here politically that's what yet to be seen bob i think the big reason why anyone files for bankruptcy whether we're trying to add an organization a company a city or an individual it so that they can disperse some of their debt great so that they can and i think that that's what we're waiting to see are things with organization or liquidation are we are we going to see a liquidation of citi assets probably not this is a chapter nine filing and so it's a little bit different than if a company had to declare this and that it's not as though the city is not going to have police workers and fire and they're going to lose or fire trucks or whatever but at the same time the question is whether they'll be able to pay them what they
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promised in terms of taking out money for their pensions out of their paychecks are they actually going to be able to fulfill the promise they made to them i think is a huge question i mean there are hundreds there are more than one hundred thousand creditors on that sixteen page filing so the question is how is everyone going to see the money that they believe it owed to them well that's a problem there's a lot of money being thrown around that possibly that people are going to get some day you and i both pay social security taxes are we going to get it probably not at least not to the degree that our parents have but you know if you can't pay if you can't pay your bills you've got to you've got to have a deed leveraging and some time and while to figure out a way to restructure in order to make sure you can pay what you owe to other people the question is who is going to be preference. in this restructuring is it going to be financial institutions who have maybe paid out some money in advance or is it going to be the civil servants who have been working for this city we don't know we also know that a lot of that there is we should know because there is a preference of order in the bankruptcy court and in the law the problem is is that
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sometimes as we saw in two thousand and eight in two thousand and nine i was as i was talking about earlier these references are just changed that the administration can force a bankruptcy court or force things through that people who are supposed to be paid more actually get paid less right so i think that that's what the court is going to have to decide here when the court the judge recently ruled that this is not a constitutional bankruptcy filing the a.g. promise that they are going to come back and appeal this so i think we got a lot to wait and see what well yes there is good it's definitely precedence setting but like the point is is that there are waves and waves of defaults coming and this is going to set a precedent for not only michigan but other states how is this going to be handled we could even see the writing in the streets if we could i mean i don't i don't know of rioting is even is even the way they can text realize this right i think that a bigger civil disobedience as has been going on is that a lot of detroit residents haven't been paying their taxes because they've been saying listen we haven't been getting this service is owed to us for these taxes we
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have been getting our utilities we haven't been getting other things so then it becomes this vicious cycle where how are they going to get their utilities if there's no tax money with which to pay these utilities you know there's an interesting president in baltimore where they're trying to attract more immigrants in order to keep the city vibrant yes indeed called in georgia that's the same question is you know is detroit to that but before they can do that they have to cleanse out all this bad debt and they can't restart without doing the first great and i think that in terms of cleansing what we're seeing is these empty warehouses two things are happening with that one as hipsters or want to do a lot of hipsters are going into some of these warehouses and group houses in trying to do something with them but at the same time we're seeing in especially into the national mortgage settlement base are actually getting so with their credit on the dollars back if they build. some of these vacated homes so you actually work tipsters into this discussion should be good for the p.b.r. your sales tax is ok and speaking of food let's move on to our next topic mcdonald's budget planning guide for its employees has caught a lot of flak this week first the budget plan didn't include food or gas also lead
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to that right right you know that kind of reminds me of c.p.i. you know the c.p.i. statistics don't include food or guys so people like you and i who don't consume food and don't drive cars or use electricity aren't affected by this but it's an interesting plan because this is an admission plan left room for income from a second job so is this an admission that big donald's workers can't make ends meet with just one job well i think it's certainly a very unsettled suggestion on behalf of the mcdonald's economists economics experts are saying you know if you really want to swing this if you really want to have a job with us and also be able to meet all these other standards of living and of insulting yeah i mean it certainly it certainly is an undue burden on these people who are already. at least thirty five hours a week i think that the bigger question here is who. whose obligation is it to make sure that all of these workers actually have the things they need in order to live there and it's their own obligation they have a job it's not like the treasury department treasury department has something
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similar that i hope to highlight next week they have their own budget plan and i don't these are the guys who turn up at their own house in order which i think is pretty ironic great even though i think they're talking about treasury debt as as household debt is just not analogous title because actually now they have a plan or similar to mcdonald's to help you manage your point and i think that the bigger question here is you know companies like mcdonald's are seen as job creators the same thing with wal-mart regular viewers of wal-mart right but being if you have a job that doesn't actually allow you to to pay for the things that you need so much so that you require government assistance it doesn't really make sense to me that the government should be subsidizing these companies it is it thinks it is a hidden subsidy isn't it yeah i mean in the congressional democrats released a report not too long ago showing that a wisconsin wal-mart supercenter actually was costing the government more than nine hundred thousand dollars a year in terms of government subsidies for its workers so that in things i would stamps. that are corporatists a lot of people talk about free markets but these big companies do enjoy
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a lot of hidden subsidies and i thought it was a real drag you know like very much of a free market i mean if they're getting subsidized it's well it's ridiculous to be talking about workers on an individual level being subsidized when these companies are on a much broader scale are you got to say good bye rachel if you want to wait in today's show be sure to like it's on facebook at facebook dot com slash prime interest you can follow rachel and curious underscores kurz you can follow me. thank you for so much joining me on the still we do all. there was a day of rebirth here at prime interest despite the dire headlines detroit might get a second chance after decades of the climate though the pensioners might not be so
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lucky and the u.s. got a boost from a buddy that moody's took away at a michael hudson talked about the cleansing that would come from the biggest bubble pop ever and it ends with a bang and not a whimper thanks for joining and this week we'll be back monday with more of what's in your interest from everyone at prime interest i'm terry i'm boring had a great night. some of these traditional chili lines they've been bred and developed and that's down from generation. this is a total destruction of the culture of mexico by telling them i mean this is not going to impact us well in mexico whatever happens here it's about the whole world now we're eating out about it in the in the you know he's you know all the organs that work for. genetically engineered crops why do you think this country is full
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of obese and sick people because we have a crappy fruits and. we're . lucky all of the. flood.
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and i'm. fine i'm a little i'm. so.
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clashes between supporters of the else to gyptian president and his opponents leaves three dead as the army puts on a show of force during a night of mass nationwide protests. life under the lens privacy groups rail against the runaway surveillance culture in britain where it is thought there is up to one camera for every eleven people. who smoke too much and drank strong coffee bradley manning's army boss testifies she suspected he was a spy from the start after the judge ruled aiding the enemy were manes among the whistleblowers charges. and business is buzzing in moscow a top flight national ministers and leading bankers agreed to find a local unemployment and increase growth in a key meeting ahead of the g twenty summit right here in russia.


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